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January 21, 2013

Political Dysfunction Tops Retirement as Major Concern

Investors disappointed over fiscal cliff deal, debt: UBS survey

House Speaker John Boehner (left) and President Barack Obama. (Photo: AP)

Wealthy investors’ biggest fear is political dysfunction, UBS found in its first-quarter Investor Watch for 2013. Concerns over political issues outweigh even retirement fears, with more than three-quarters of respondents saying the political environment worries them most.

UBS polled more than 2,000 respondents with at least $250,000 who use a professional advisor in early January. About one-fifth of the respondents were UBS clients.

Just 37% of respondents said they were satisfied with the fiscal cliff deal announced on Jan. 1. Ninety percent of respondents said that while the agreement may have avoided the cliff, it didn’t do enough to address the debt problem. In fact, nearly a third of respondents expressed doubt that the government would make any serious progress on cutting debt this year.

The lack of faith in the government’s ability to address those long-term issues resulted in a drop in investors’ mid- to long-term outlook, according to the UBS poll. However, despite the widely felt concern over political issues, over half of respondents said they were confident about their own financial situation, up from 44% in September.

UBS noted in the report detailing the poll findings that today’s investors are “adaptive creatures.” According to the report, “Neither euphoric nor despondent, [investors] are more pragmatic and reasonable, with tempered return expectations and less optimism about the long-term economic outlook—while acknowledging that participating in the markets is necessary to grow their wealth.”

To that end, just 23% of respondents said they were attempting to beat the market; the majority were just trying to track it. One-quarter said they would be OK with underperformance in up-markets if it meant they wouldn’t lose anything in down-markets.

While retirement remains an important consideration for investors, the poll found other long-term concerns like health care have gained in significance. Nearly three-quarters of respondents said their top priority was staying healthy and fit. Maintaining their quality of life and enjoying life were rated as the second and third priorities. Just 26% of respondents said retiring “how and when” they want was their top priority.

The importance of a financial plan and a good advisor is not lost on investors. UBS found that respondents who follow a financial plan were significantly more confident both in their financial situations and confidence in achieving their goals. Just 31% of respondents who don’t follow a consistent plan said they felt very good about their financial situation compared with 73% of those who did have a plan. When asked how confident they were about achieving their goals, the gap was even wider: 21% of those without a consistent plan said they were very confident, compared with 68% of those who did follow their plan.

Furthermore, 68% of respondents said getting good advice to help make smart decisions was an important step in achieving their goals. Half of respondents spoke with their advisors about the fiscal cliff deal, according to the report, and those investors were twice as likely to take some kind of action. Twenty-two percent shifted to more conservative investments or sold investments for capital gains prior to any potential increases in the tax rate. Just 8% of those who didn’t speak with their advisor moved to more conservative investments, and just 5% made adjustments based on capital gains taxes.

One surprise in the report is that investors between 25 and 49 were more likely to be concerned with long-term care issues than older investors. “This may be because this age group is beginning to see the potential effects as their parents and older loved ones age,” the report theorized. One-third of respondents between ages 25 and 49 said they were very worried about being able to afford health care, compared with 18% of respondents over 60. Twenty-two percent of the younger respondents said they were worried about having a caretaker in their old age, compared with 13% of the older group.